IRS updates Employee Plans Compliance Resolution System

The IRS has updated the Employee Plans Compliance Resolution System (EPCRS), a comprehensive system of correction programs for sponsors of retirement plans that have failed to satisfy the requirements of Code Secs. 401(a), 403(a), 403(b), 408(k) or 408(p). EPCRS permits plan sponsors to correct failures and thereby continue to provide their employees with retirement benefits on a tax-favored basis. The components of EPCRS are the Self-Correction Program (SCP), the Voluntary Correction Program (VCP), and the Audit Closing Agreement Program (Audit CAP). The revenue procedure updates the prior consolidated statement of the correction programs under EPCRS issued in 2013 (see Rev. Proc. 2013-12). The updated EPCRS procedures are effective January 1, 2017.

Recoupment of overpayment failures

Rev. Proc. 2015-27 provided, among other things, clarification on the issue of recoupment of benefit overpayments. The IRS clarified that there was flexibility in correcting an overpayment under EPCRS based on a concern that some plan sponsors might be wrongly interpreting the EPCRS corrections rules as requiring a demand for recoupment from plan participants and beneficiaries in all cases of overpayment failures. Those clarifications are incorporated into the updated EPCRS. The IRS continues to request comments on revisions to EPCRS concerning the recoupment of overpayments.

Employee elective deferral failures

Rev. Proc. 2015-28 provided new supplemental safe harbor correction methods concerning automatic contribution features and employee elective deferral failures. The updated EPCRS incorporates the changes made in Rev. Proc. 2015-28 by adding a safe harbor correction method for missed elective deferrals for eligible employees who are subject to an automatic contribution feature in a 401(k) or 403(b) plan and two safe harbor correction methods for certain short-term elective deferral failures.

User fees

Prior to Rev. Proc. 2016-8, user fees for VCP submissions were set forth in the EPCRS revenue procedure. Rev. Proc. 2016-8 modified Rev. Proc. 2013-12 by providing the general user fees for VCP submissions in 2016 and included cross-references to Rev. Proc. 2013-12 for special rules relating to determining the user fees for VCP submissions, such as special user fees for group submissions. Beginning in 2017, all user fees and rules relating to user fees for VCP submissions will be published in the annual revenue procedure that sets forth user fees.

Audit CAP sanctions

The IRS has provided a revised approach for determining Audit CAP sanctions. Audit CAP sanctions are no longer going to be a negotiated percentage of the maximum payment amount, but instead will be determined based on the facts and circumstances. The maximum payment amount is one such factor that may be considered. Also, in general, the sanction will not be less than the VCP user fee applicable to the plan. Also, there are changes for nonamender failures discovered while the plan is under examination and during the determination letter application process. The sanction for failing to timely adopt an amendment that is corrected within three months after the expiration of the remedial amendment period has been reduced to $750, regardless of the number of plan participants.

Elimination of staggered five-year remedial amendment cycles

EPCRS is being modified to take into account the fact that, effective January 1, 2017, the staggered five-year remedial amendment cycles for individually designed plans will be eliminated, and the scope of the determination letter program for individually designed plans will be limited to initial plan qualification, qualification upon plan termination, and certain other circumstances.

Future updates

It is expected that the EPCRS revenue procedure will continue to be updated, in whole or in part, from time to time, including further improvements to EPCRS based on comments received. Thus, further comments on how to improve the EPCRS are invited.